Porter Five Forces Assist an Organisation in Their Strategic Planning

In porter’s theory, substitutes refer to products in other industries, not different types of the product. A substitute exists when a products demand is affected by a change in the price of the substitute product.

The Porter’s five forces is a competitive position analysis and business strategy format created by Michael Porter in 1979. The premise behind the format is to provide them with five forces that shape every industry. Mr. Porter 's theory is that if a company analyzed the information received from reviewing the five forces, the company would be able to compete in a higher fashion against its competitions. Following the five forces would allow a firm to determine the type of market or industry it is operating in. Each of the five works as an individual factor in the microenvironment, but one force could not exist without the out force in a stable economy. The five forces are Supplier Power, Buyer Power, Threat of substitutes, the threat of new entrant and Competitive Rivalry. Three forces affected the market horizontally while two affected, it vertically from each side. A review of the movie rental market from the Porter’s five forces.

The five forces framework can be used to gain insight into the forces at the work in the business environment of a strategic business unit which need particular attention in the development of strategy. Porter's five forces framework is of great importance in developing strategic options to improve relative performance in the industry or influence relative position in industry. (Johnson and Scholes,P.119).Because strategic choices need to take account of the external environment especially pay attention on Porter's Five Forces in which the organization operates: competitive advantage may be eroded as substitute products due to technology changes or as new competitors enter market.( Porter, 2001) For example: a leading manufacturer of vacuum tube with strong position in the electronic

This lead the new firms can enter and unprofitable firms can exit easily if they cannot survive. Theoretically, any firm can enter and exit a market in industry, this is because they have the freedom to entry and exit and the profits always be nominal. Barriers to entry are unique characteristics that define the industry. Barriers will reduce the chances of entry of new firms instead they can maintaining a level of profits for those already in the industry. Barriers are possible to created or exploited to enhance a firm’s competitive advantage from the strategic

The bargaining power of customers is also described as the market of outputs; the ability of customers to put the firm under pressure, which also affects the customer’s sensitivity to price changes. This is a new product so the company will start with a lower price so if the company maintains a reasonable price definitely the customers will come buy the product.

Substitutes can come from within the industry and can also from outside the industry with a product that has a similar application. Supply and demand theory can be applied to this threat. The more the substitutes the less the demand and therefore the lower the price may be.

This theory is based on the concept that there are five forces that determine the competitive intensity and attractiveness of a market. Porter’s five forces help to identify where power lies in a business situation. This is useful both in understanding the strength of an organization’s current competitive position, and the strength of a position that an organization may look to move into.

The high buyer power led to the intense competition within an industry by decrease the prices and bargaining for improve of the product quality. Consequently it will diminish the industry profitability. Besides, the power of buyer depends on the characteristics related to its market situation and also the how importance of its purchases compare to the buyers overall costs or purchases. (Bargaining Power of Buyers: Porter’s Five Forces Analysis, 2013)

Michael Porter 's five forces model is in light of the comprehension that a corporate philosophy should meet the opportunities and dangers in the affiliation 's external surroundings. Especially, forceful strategy should base on a cognizance of industry structures and the way they change.

Porter’s “Five Forces” model focuses on business’ external environment where many factors influencing the success of companies, including industry rivalry, competition from new entrants, substitute products, bargaining power of buyers, as well as suppliers. (See Figure 1.).

In general, any CEO or a strategic business manager is trying to steer his or her business in a direction where the businesswill develop an edge over rival firms. Michael Porter 's model of Five Forcescan be used to better understand the industry context in which the firm operates. Porter 's Five Forces model is a strategy tool that is used to analyze attractiveness of an industry structure. Porter 's Five Forces modelviews

4. Availability of Substitutes - What is the likelihood that someone will switch to a competitive product or service? If the cost of switching is low, then this poses a serious threat. Here are a few factors that can affect the threat of substitutes: The fundamental issue is the comparability of substitutes. For instance, if the cost of espresso climbs considerably, an espresso consumer may switch over to a drink like tea. On the off chance that substitutes are comparable, it might be seen in the same light as another contestant.

Porter’s five forces framework is a framework to analysis the level of competition in an organization and business strategy development. It illustrates upon industrial organization economics to derive 5 forces that find out the competitive intensity and therefore attractiveness of an industry. It has been applied to a diverse range of obstacles, for helping different types of organization increase their profitability. There are different opportunities and treats involved. In the following paragraph, Porter’s five forces framework is illustrated and briefly provide how five forces company’s profit potential.

The bargaining power of the buyers (consumers) is high, based on the increasing number of the competitors, substitutes, and the fluctuations in the consumer behavior, preferences, and demands.

In today 's dynamic and competitive business environment, survival, growth and profitability are the essence goals of all industries. Nowadays, Porter 's Five Forces model is currently being adopted as the powerful management tool of choice by many organizations. The essence of this model is that it can help senior managers to make right decision and build and sustain competitive advantages in the organization level. This document presents the overview approach of Porter¡¦s five forces framework across organizations. And critically evaluation of porter¡¦s five forces model mainly focused on identifying the benefits and limitations of it and exploring some perceived issues or problems regarding implementation. Finally the